A tale of two wests

Julia Gillard
may be in western Sydney explaining how she will protect people from violent gangs and organised crime. In Western Australia,
Colin Barnett
is trying to persuade voters he can protect them from federally organised theft. The level of violence involved is a relative matter.

The WA Premier is sounding optimistic he can negotiate a deal with a Coalition federal government and other premiers over more equitable sharing of GST revenue. At the moment, he insists, WA only gets back around 55 per cent (and plummeting) of what it pays – which he cites as a big reason for the rising debt levels in a state struggling to match services with surging population.

He wants the state to keep at least 75 per cent of the money.

“It may take some time but I have no doubt there will be a resolution of that because you can’t have the strongest part of the Australian economy being held back,’’ he tells the Financial Review.

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But there is a much broader issue here – even if it will get little attention while federal politicians are more desperate to demonstrate how much they care about western Sydney.

That is the degree to which the resources-led strength of the West Australian economy assists the national economy and how much it distorts economic life in other parts of the country and other sectors, particularly a floundering manufacturing industry.

A populist view is that the resources sector has been sucking the life out of a more “balanced" economy, mainly by keeping the dollar overvalued, and that there’s too little thought given to what’s left “when the resources boom ends".

This ignores the massive central bank exercises in printing money in most of the developed world and the fact that a high Australian dollar greatly increases costs for the resources industry too, even if imports are cheaper (including for consumers).

Australia, with relatively high interest rates courtesy of the Reserve Bank, still looks a terrific option for all that international capital looking for higher yields. The Australian dollar didn’t follow commodity prices down last year.

Despite a slight pull-back recently, a strong Australian currency is likely to persist, even given a global stockmarket now in love with any good news it can find, rather than being constantly spooked by bad news.

But Barnett’s firm view – along with most of the West Australian population – is that Australia, including Sydney’s west, can only be grateful that the state’s growth rate is currently close to 7 per cent. And that, despite the ups and downs of commodity prices, the national significance and expansion of WA’s resources exports and of related services will only grow.

If handled well enough, this should spearhead the ability to develop specialised manufacturing, engineering, mining services and related skills – including plenty of highly paid, highly skilled jobs the government wants.

Any chance of the federal budget getting back to surplus, the Premier argues, will depend heavily on the flow of corporate and income tax (not the mining tax!) from WA. That sort of claim may not resonate well elsewhere but it’s only partly explained by typical WA hubris.

Barnett likes to point out that two-thirds of the full-time jobs created in Australia last year were in the West and that the state is 20 years ahead in terms of its relationships with Asia and the forces shaping the global economy.

It’s certainly true that economic and political debate in WA has traditionally been more focused on export markets than is common in any other state but this has greatly accelerated over the past several years. So has the sense that much of the rest of the country just doesn’t appreciate the scale of the change happening.

But the launch of a WA chapter of the Chartered Financial Analyst Institute last Friday was another example of how lawyers, accountants, investment bankers, financiers, management consultants and other investment professionals now recognise the state as key to their growth opportunities as well.

The Gillard government puts out white papers on Australia in the Asian Century but it’s WA – in business and government – that is most experienced at adapting theory to practical effect.

The fall in commodity prices last year and the delay of expansion plans has punctured some of the ebullience in what has always been a boom-bust state.

But Geoff Raby, former Australian ambassador to China and now company director and consultant, told the launch that, despite the self-criticism and some problems, WA had been highly successful and sophisticated in its ability to quickly boost supply to meet the extraordinary level of Chinese demand.

The issue now is how to build and broaden that expertise, nationally and internationally.

The economic answer – as opposed to the political one – is not to be found tripping around western Sydney.